Cost Advantages of Electrical Generation Using Natural Gas

Quote of the Day

There’s an unpriced externality in the cost of fossil fuels. The unpriced externality is the probability-weighted harm of changing the chemical constituency of the atmosphere and oceans. Since it is not captured in the price of gasoline, it does not drive the right behavior. It’d be like if tossing out garbage was just free, and there was no penalty, and you could do it as much as you want. The streets would be full of garbage. We’ve regulated a lot of other things, like sulfur emissions and nitrous oxide emissions; it’s done a lot of good on that front.

— Elon Musk. I view this quote as a restatement of the Tragedy of the Commons.


Figure 1: Total Cost of Purchasing A kW-hr of Electrical Power vs Time and Fuel. The y axis is expressed in units of Mills ($0.001) per kW-hr.

Figure 1: Total Cost of Purchasing A kW-hr of Electrical Power vs Time and Fuel. The y axis is expressed in units of Mills ($0.001) per kW-hr.

I have been reading about how low natural gas prices have been affecting the coal mining industry. Coal mining is affected because those coal-fired electrical generation plants that can switch fuels are converting to natural gas to achieve significant cost reductions. Also, natural gas can fuel peaking generators that are designed to provide peak load support. The fuel conversions have increased to the point where it is significantly reducing the demand for coal.

I had no idea what the price advantages were for natural gas over other fuels, so I surfed over the US Department of Energy's (DoE) web site and found two tables that provided a summary of the maintenance, fuel, and operating costs for different types of electrical generation plants. The DoE combines the data for natural gas, solar, wind, etc into a single category called "Gas Turbine and Small Scale." This type of data is best presented in the form of a graph, so I used Excel's Get and Transform (Power Query) to download the tables, combine them, and reformat the information for easy plotting. Costs are expressed in Mills ($0.001) per kW-hr.

My Excel workbook is available here. It is a good example for people who want to (1) learn how to access data with a complex format, (2) uses an inner join to combine data, and (3) makes use of table transpose and unpivot operations.

Figure 1 shows the dramatic drop in the cost of electrical power produced by natural gas since 2008. Starting in 2012, electrical power generated from natural gas has had roughly the same cost or lower than from coal, and you can reduce your carbon footprint as well.

Figure 2 shows how the cost of natural gas, coal, and uranium have varied with time – the water for a hydroelectric plant is considered to be free.  The drop in prices of electricity generated by natural gas is entirely accounted for by the price drop in fuel since the plant maintenance and operating costs have not changed much (Figure 3).

Figure 2: Fuel Cost vs Time

Figure 2: Fuel Cost vs Time

Figure 3: Plant Maintenance and Operating Costs vs Time.

Figure 3: Plant Maintenance and Operating Costs vs Time.

 
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2 Responses to Cost Advantages of Electrical Generation Using Natural Gas

  1. William Reed says:

    Sir:
    What's wrong with following the convention of measuring units cost in dollars per mega-Watt hour and capacity in mega-Watts?
    Not even power engineers use mills, and the size of most generating stations make mega-Watts a more appropriate measure of their power.
    Also, what does "Small Scale" mean in the phrase "Gas Turbine and Small Scale" in Fig. 2?

     
    • mathscinotes says:

      Hi William,

      There is nothing wrong with alternative units. I just used the units that the DoE used – units in the US are often driven by custom. Other than scaling, it will make no difference in the graphs, which show relative relationships. The DoE says Gas Turbine and Small Scale category consists of gas turbine, internal combustion, photovoltaic, and wind plants. I will add that definition to my post.

      Thank you for your comment. I really appreciate the review.

      mark

       

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